In a move that will impact the freedom of Reliance [Get Quote] and GSPC to sell natural gas they have discovered, the government has decided to set up priority sectors to which the fuel can be sold.

An empowered group of minister headed by External Affairs Minister Pranab Mukherjee, has decided that companies 'would sell gas to consumers in accordance with the marketing priorities determined by the government.'

"The sale would be on the basis of formula for determining the price as approved by the government," a senior official said citing the eGoM's decision.

Consumers belonging to any of the priority sector should be in a position to actually consume gas as and when it becomes available.

"Marketing priority does not entail any reservation of gas. So in case consumers in a particular sector, which is higher in priority, are not in a position to take gas when it becomes available, it will go to the sector which is next in order of priority," he said.

The eGoM however said the priority would not impact the process of price discovery that would involve participation by all customers.

For Reliance, which is to produce gas from its eastern offshore KG-D6 field from September, the eGoM decided that the gas will first go to fertiliser units, LPG plants, existing power plants and city gas distribution in that order.

Reliance is to produce 25 million standard cubic meters per day of gas from September that would scale up to 40 mmscmd by March 2009. GSPC would produce about 6 mmscmd from 2011, for which priority sectors would be decided later.

The eGoM decided that all gas produced from areas awarded under New Exploration Licensing Policy like KG-D6 of Reliance, would have to sell the fuel 'in accordance with the marketing priorities determined by the government."

It has asked Reliance to first supply gas to existing gas based urea plants which are now getting gas below their full requirement.

After urea plants, a maximum quantity of 3 mmscmd would be supplied to existing gas-based LPG plants and thereafter up to 18 mmscmd to gas-based power plants that were lying idle/under-utilized or likely to be commissioned during 2008-09, or liquid fuel plants, which are now running on liquid fuel and could switch over to natural gas.

A maximum quantity of 5 mmscmd would be made available to City Gas Distribution projects for supply of Piped Natural Gas to households and Compressed Natural Gas in transport sector.

Reliance had won the KG-D6 block in the first round of auction under NELP in 1999 and in September 2007 the same eGoM had approved a price of $4.2 per million British thermal unit for the gas to be produced from the block.

The price is lower than the price commanded by fields like Panna/Mukta and Tapti in the western offshore and that of imported liquefied natural gas.